In early Dec 2015 there was a thread about Bank of Ireland on TMF, in which I put a negative view and sold my BKIR (as it was then) shares. Bank stocks have had a turbulent couple of years since then. However, their subordinate bond yields have risen strongly and I think this is a very bullish development for the equity. It means the banks' marginal cost of borrowing is dropping and should foretell more profitable days ahead. I still hold the view that over the next ten years a wall of capital is heading towards the banks who will have little option but to return it to shareholders. Indeed, Lloyds said pretty explicity in their latest reporting period that for the next few years they will have at least 10%pa excess capital, half of which I expect to be returned in dividends. That means dividend yields of 5% or more and likely special dividends or sharebuybacks without any negative impact on the business.

I haven't looked closely at BIRG accounts recently but things are moving sufficently well that I have trebbled my exposure to the equity over the past few months, while at the same time reducing sub-debt holdings. In six months' time I'll re-evaluate and perhaps add more shares outright.

Based on the track record of the Irish Government I am wary of investing too heavily in its banks or other financial institutions. If banks have another rough patch what is to stop them grabbing 99% of the ordinary shares for peanuts as they did with Irish Life and Permanent? The ECJ ruled against shareholders and pronounced the dilution lawful as well. It would appear that "Stability of the financial system" trumps EU company law. What possible threat the pip-squeak IL&P had to financial stability is still a mystery to me. I continue to hold BOI, but that is as far as I want to go down the hierarchy and may reduce soon as the yield has become so low.

Having said all that wrt BIRG, I have been gradually coming round to the view that bank ords may be worth a punt, for precisely the reasons you state. Banks are able to fund borrowing at what seems like ever decreasing rates and issue subordinated paper on terms I would not touch for half the price. As we know LLoyds were able to call the expensive ECNs (swines!), but other banks have been carrying out similar exercises and without the costs involved in going to court. All European banks have been calling their USD preferreds. Barclays has just BCS-D outstanding and in just 18 months time they will be able to call the capital securities they issued to the Kuwaitis at an eye watering 14%.

Despite best efforts of regulators, the so-called challenger banks, P2P lending, etc. has so far failed to make much of a dent in the customer bases or business of the established banks, so I don't really see much of a risk coming from that direction. Neither do I see much of a risk from new technology such as apps based on the open banking APIs or distributed ledger crypto-babble. The banks will just copy anything out there if it looks popular or a threat. In desperation to create more competition though regulators may be forced to take more draconian measures than they already have or even break up some of the larger banks.

A few things do still concern me though. The first is to what extent bad debts have been worked through and in a similar vein, are banks still prepared to write loans at silly prices? There has been a lot of forbearance and anecdotally, on credit cards/personal loans, they appear to be going back to the bad days. I am convinced the only reason banks have not flooded the sub-prime mortgage market again is that the regulators simply will not let them. Rising interest rates should in theory boost bank profits, but this may not happen if the default rates on their loans spiral upwards, asset prices downwards and existing provisions found to be inadequate. I am not totally convinced by the mantra "Rising interest rates are good for banks".

The second concern I have is the potential cost of the mass of investigations that are still ongoing in banks' misdemeanors. What worries me is not just the stuff from pre-crisis, but everything the banks have been up to since. There just does not seem to have been the cultural shift in behaviour that should have taken place. If the banks can do-over a customer with some shody financial product or service fee they still will. Ignoring the ethics of this, it is bad business because it just stores up future PPI-like risks.

Perhaps a bit of an outside risk, but the third concern I have had for a long time is the potential for populist tax grabs from banks should it look like they will become highly profitable again. I don't see this as just a Corbyn risk either. Osborne introduced the bank levy and Geoffrey Howe hit banks with a windfall tax in the early 80s.

Anyway, despite major concerns, still pondering a punt on a few of the beaten up banks Barclays, Lloyds, Deutsche and perhaps RBS.

p.s. I think you meant to say "subordinate bond prices have risen strongly".